Completion, Review and Audit Reporting
Completion procedures
Before issuing the report the auditor performs subsequent events review (adjusting vs non-adjusting events up to the date of the report), obtains written representations (a letter from management confirming responsibilities and completeness of information), performs a going concern assessment (at least 12 months from the date of the financial statements), reviews litigation and claims, evaluates uncorrected misstatements in aggregate against materiality, and carries out engagement quality control review where required. Candidates must know the difference between the date of the financial statements, the date of the auditor's report, and the date the statements are issued.
Forming the opinion
Options: unmodified (clean), qualified (except for), adverse, and disclaimer. The choice depends on two dimensions: the nature of the matter (material vs pervasive) and whether it is a misstatement or a limitation of scope. A material but not pervasive misstatement yields a qualified opinion; a material and pervasive misstatement yields an adverse opinion; a material but not pervasive scope limitation yields a qualified opinion; a material and pervasive scope limitation yields a disclaimer. Emphasis of Matter and Other Matter paragraphs do not modify the opinion.
Key report elements
The report includes the title, addressee, opinion section (placed first under ISA 700 revised), basis for opinion, key audit matters (for listed entities), going concern statement, responsibilities of management and the auditor, and the auditor's signature, date and address.
Traps
- Putting the opinion at the end of the report (it must come first).
- Confusing an Emphasis of Matter with a qualification.
- Using an adverse opinion for a scope limitation.
- Forgetting that written representations are required even where the auditor has other evidence.
Rule of thumb
Two questions decide the opinion: Is it material? and Is it pervasive? Then ask: misstatement or scope limitation?